NEWS RELEASE
EXHIBIT 99(a)
Cleveland-Cliffs Inc
1100 Superior Avenue
Cleveland, Ohio 44114-2589
- --------------------------------------------------------------------------------
CLEVELAND-CLIFFS REPORTS RESULTS
FOR THIRD QUARTER 2003
Cleveland, OH - October 29, 2003 - Cleveland-Cliffs Inc (NYSE:CLF)
today reported a net loss of $4.8 million, or $.47 per share (all per share
amounts are "diluted") for the third quarter of 2003. However, excluding special
charges of $6.2 million for organizational restructuring, and $4.9 million for
accounts receivable from a bankrupt customer, the Company would have had a
profit of $6.3 million in the quarter. The net loss in the third quarter of 2002
was $92.7 million, or $9.18 per share, or income of $6.1 million, or $.60 per
share, excluding a loss from a discontinued operation.
The Company reported a net loss of $23.8 million, or $2.33 per share,
for the first nine months of 2003. In the comparable period in 2002, the net
loss was $117.5 million, or $11.61 per share. Excluding a loss from a
discontinued operation (including a $95.7 million impairment charge in the third
quarter) and a charge for the cumulative effect of an accounting change, the
2002 first nine months loss was $.8 million, or $.09 per share.
(IN MILLIONS EXCEPT PER SHARE)
--------------------------------------------------------------
THIRD QUARTER FIRST NINE MONTHS
----------------------------- ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Income (Loss) From Continuing Operations:
Amount $ (4.8) $ 6.1 $ (23.8) $ (.8)
Per Share (.47) .60 (2.33) (.09)
(Loss) From Discontinued Operation:
Amount -- (98.8) -- (103.3)
Per Share -- (9.78) -- (10.20)
------------- ------------- ------------- -------------
Loss Before Cumulative
Effect of Accounting Change:
Amount (4.8) (92.7) (23.8) (104.1)
Per Share (.47) (9.18) (2.33) (10.29)
Cumulative Effect of Accounting Change:
Amount -- -- -- (13.4)
Per Share -- -- -- (1.32)
------------- ------------- ------------- -------------
Net Loss:
Amount $ (4.8) $ (92.7) $ (23.8) $ (117.5)
Per Share (.47) (9.18) (2.33) (11.61)
============= ============= ============= =============
Earnings (Loss) Before Interest, Taxes,
Depreciation and Amortization (EBITDA)* 2.0 16.5 (3.5) 13.9
* Results from continuing operations. EBITDA is a non-GAAP financial measure
used by investors to analyze and compare companies on the basis of operating
performance.
In the third quarter 2003, Cliffs initiated a salaried employee
reduction program that affected all of its U.S. locations. The action resulted
in a staff reduction of 119 employees, with an additional reduction of 16
employees expected in the fourth quarter, equating to an overall 20 percent
reduction in salaried workforce at Cliffs' U.S. operations. The Company recorded
a restructuring charge of $6.2 million in the third quarter 2003 and expects to
record an additional $2.0 million charge in the fourth quarter. The
restructuring charge is principally related to severance, pension and healthcare
benefits with less than $2 million requiring cash funding in 2003.
Cliffs recorded provisions of $4.9 million in the third quarter and
$7.5 million in the first nine months related to bankruptcy filings by two
customers in 2003. WCI Steel Inc. and Weirton Steel Corporation filed for
Chapter 11 bankruptcy protection in September 2003 and May 2003, respectively.
To date, both customers have continued to purchase ore from Cliffs. As
previously disclosed, Rouge Industries, Inc., a third customer, filed for
Chapter 11 bankruptcy protection on October 23, 2003. Cliffs had no trade
receivable exposure with Rouge at the time of the filing, but has a $10 million
secured loan to Rouge that matures in 2007.
Interest Income was higher in 2003, mainly due to income on long-term
receivables from Ispat Inland Inc., while a reduction in outstanding debt caused
a decrease in Interest Expense in 2003. Lower Other Income in 2003 was primarily
due to insurance claims recoveries in 2002 partly offset by higher gains on
sales of non-strategic assets.
Sales margins were $1.8 million higher in the third quarter and $1.5
million lower for the nine-month period compared to the same periods last year.
The variances largely reflect increased sales volume and price realization
offset by higher costs. The cost increases primarily reflected higher energy
costs, lower plant throughput rates at Michigan operations due to ore quality,
and increased pension and medical costs. While the ore related issues at Tilden
appear to be mostly behind us, Empire will be challenged with ore quality issues
through 2004. Included in the first nine months of 2003 was a $11.1 million
fixed cost impact of a five week production curtailment at the Empire and Tilden
mines, which occurred in the second quarter of 2003, due to a flood-related loss
of electric power supply. Fixed cost related to production curtailments
necessitated by weak markets for pellets were $3.4 million and $20.6 million in
the third quarter and first nine months of 2002, respectively.
The comparison of 2003 and 2002 after-tax results from continuing
operations was affected by a $4.4 million favorable adjustment of tax
liabilities for prior years recorded in the second quarter of 2002. The 2003
results included state and foreign taxes of $.3 million and $.5 million in the
third quarter and first nine months, respectively, and no federal tax credit due
to the valuation reserve established in the third quarter 2002.
Iron ore pellet sales volume increased in 2003 reflecting Cliffs'
increased mine and pellet plant ownership. Third quarter sales were 5.2 million
tons compared to 5.0 million tons in 2002, and first nine months sales were 13.6
million tons versus 10.2 million tons in 2002. At the end of September, Cliffs
had 4.4 million tons of pellets in inventory compared to 3.9 million tons at
December 31, 2002. Following is a summary
of production tonnage for the third quarter and the first nine months, and the
current forecast for the full year, comparative with 2002:
(TONS IN MILLIONS)
---------------------------------------------------------------------------------------------
THIRD QUARTER FIRST NINE MONTHS FULL YEAR
--------------------------- ---------------------------- -----------------------------
2003 2002 2003 2002 2003 EST. 2002
------------- ---------- ------------ ----------- -------------- ----------
Empire 1.3 1.0 3.7 2.1 5.2 3.6
Tilden 2.2 2.0 5.2 5.8 7.1 7.9
------------- ---------- ------------ ----------- -------------- ----------
Michigan Mines 3.5 3.0 8.9 7.9 12.3 11.5
Hibbing 2.1 2.1 6.0 5.5 8.1 7.7
Northshore 1.2 1.1 3.6 2.9 4.8 4.2
Wabush 1.5 1.3 3.9 3.2 5.2 4.5
------------- ---------- ------------ ----------- -------------- ----------
Total 8.3 7.5 22.4 19.5 30.4 27.9
============= ========== ============ =========== ============== ==========
Cliffs' Share of Total 5.0 4.2 13.4 10.5 18.2 14.7
============= ========== ============ =========== ============== ==========
Cliffs' full year production estimate of 18.2 million tons, which is 1.7 million
tons below planned production at the beginning of the year, primarily reflects
production losses due to the power interruption and lower plant throughput at
the Michigan mines.
LIQUIDITY
At September 30, 2003, Cliffs had $67.6 million of cash and cash
equivalents, which compared with $61.8 million at the beginning of the year. The
$5.8 million increase was primarily due to net cash from operating activities,
$17.6 million, and proceeds from non-strategic land sales, $8.4 million,
partially offset by capital expenditures, $16.3 million and repayment on
long-term debt, $5.0 million. There was $50 million of debt outstanding at the
end of September, which is scheduled to be repaid with a $15 million payment in
December, 2003 and a $35 million payment in December, 2004. The Company
continues to evaluate financing alternatives.
OUTLOOK
Steel industry fundamentals in the United States and Canada are
showing signs of moderate improvement, as prices and operating rates have risen
modestly. Blast furnace capacity idled earlier in the year has been brought back
on line sooner than projected, as the overall market for steel products has
improved.
John S. Brinzo, Cliffs' Chairman and Chief Executive Officer, said,
"With most steelmakers running their mills at higher rates, the demand for iron
ore pellets has strengthened. We now expect our 2003 pellet sales to be
approximately 18.5 million tons, an increase of .5 million tons from our
previous estimate."
Global demand for iron ore is extremely strong, largely fueled by the
rapid growth in the Chinese steel industry. In response to China's increasing
demand for iron ore, Cliffs announced earlier this month that it has partnered
with Laiwu Steel Group of China in an offer to acquire and restart the Eveleth
Mine in Northeast Minnesota. If successful in acquiring the Mine, it is
anticipated that Cliffs would own approximately 70 percent of the new entity
with Laiwu owning the remaining interest. Cliffs would
manage the 4.3 million ton pellet operation and each owner would take their
equity share of pellets. Cliffs could also sell additional tonnage to Laiwu.
Cliffs and its partners in the Mesabi Nugget Project have recently
entered into a second operating campaign of the pilot plant located at its
Northshore Mine in Silver Bay, Minnesota. This campaign, which will last for
approximately six months, is intended to demonstrate the commercial viability of
this technology. While much work needs to be done to prove the economics of the
project, technical results to date have been promising.
In July, the Company outlined an action plan to significantly improve
operating results by achieving annualized operating cost savings in excess of
$35 million from 2003 results. Significant progress has been made to date in
implementing certain components of the plan, including completion of a 20
percent reduction in salaried workforce at its U.S. operations. Combination of
the Company's Empire and Tilden mines in Michigan into one operating unit began
in June and is progressing well. Benefits of the combination are being realized,
with additional benefits anticipated in 2004. These actions are reflective of
the ongoing transformation of the industry as Cliffs positions itself to serve a
newly reconstituted North American steel industry.
* * * * * * * * * * * * * * * * * *
Cleveland-Cliffs is the largest supplier of iron ore pellets to the
North American steel industry. The Company operates iron ore mines located in
Michigan, Minnesota and Eastern Canada. References in this news release to
"Cliffs" and "Company" include subsidiaries and affiliates as appropriate in the
context.
This news release contains predictive statements that are intended to
be made as "forward-looking" within the safe harbor protections of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
forward-looking statements are based on reasonable assumptions, such statements
are subject to risks and uncertainties.
Actual results may differ materially from such statements for a
variety of factors; such as: the expectations for pellet sales and mine
operations and the projected liquidity requirements in 2003 may differ
significantly from actual results because of changes in demand for iron ore
pellets by North American integrated steel producers due to changes in steel
utilization rates, operational factors, electric furnace production or imports
of semi-finished steel or pig iron; changes in the financial condition of the
Company's partners and/or customers; rejection of major contracts and/or venture
agreements by customers and/or participants under provisions of the U. S.
Bankruptcy Code or similar statutes in other countries; events or circumstances
that could impair or adversely impact the viability of a mine and the carrying
value of associated assets; problems with productivity, weather conditions,
fluctuations in ore grade, tons mined, changes in cost factors including energy
costs, and employee benefit costs; and the effect of these various risks on the
Company's liquidity, compliance with restrictive covenants in debt agreements
and financial position.
Reference is made to the detailed explanation of the many factors
and risks that may cause such predictive statements to turn out differently, as
set forth in the Company's most recent Annual Report and Reports on Form 10-K
and 10-Q and previous news releases filed with the Securities and Exchange
Commission, which are available publicly on Cliffs' website. The information
contained in this document speaks as of the date of this news release and may be
superceded by subsequent events.
Cliffs will host a conference call on third quarter 2003 results
tomorrow, October 30, at 10:00 a.m. EDT. The call will be broadcast live on
Cliffs' website at www.cleveland-cliffs.com. A replay of the call will be
available on the website. Cliffs will file its third quarter 10-Q Report with
the Securities and Exchange Commission on October 30. For a more complete
discussion of operations and financial position, please refer to the 10-Q
Report.
Contacts:
Media: (216) 694-4870
Financial Community: (800) 214-0739 or (216) 694-5459
News releases and other information on the Company are available on the Internet
at www.cleveland-cliffs.com
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
(In Millions Except Per Share Amounts) 2003 2002 2003 2002
- -------------------------------------- ---------- ---------- ---------- ----------
REVENUES
Product sales and services
Iron ore $ 189.9 $ 170.8 $ 484.8 $ 354.6
Freight and minority interest 36.3 26.3 99.4 50.1
---------- ---------- ---------- ----------
Total product sales and services 226.2 197.1 584.2 404.7
Royalties and management fees 3.1 3.4 7.7 8.0
Interest income 2.7 1.4 7.9 3.4
Other income 2.2 5.8 9.6 11.7
---------- ---------- ---------- ----------
TOTAL REVENUES 234.2 207.7 609.4 427.8
COSTS AND EXPENSES
Cost of goods sold and operating expenses 218.9 191.6 594.7 413.7
Administrative, selling and general expenses 6.1 5.2 15.5 16.0
Restructuring charge 6.2 .4 6.2 .5
Provision for customer bankruptcy exposure 4.9 7.5
Interest expense 1.2 1.5 3.7 5.4
Other expenses 1.4 1.0 5.1 4.0
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 238.7 199.7 632.7 439.6
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4.5) 8.0 (23.3) (11.8)
INCOME TAXES (CREDIT) .3 1.9 .5 (11.0)
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (4.8) 6.1 (23.8) (.8)
LOSS FROM DISCONTINUED OPERATION (98.8) (103.3)
---------- ---------- ---------- ----------
LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (4.8) (92.7) (23.8) (104.1)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (13.4)
---------- ---------- ---------- ----------
NET LOSS $ (4.8) $ (92.7) $ (23.8) $ (117.5)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE
Basic and Diluted
Continuing operations $ (.47) $ .60 $ (2.33) $ (.09)
Discontinued operation (9.78) (10.20)
Cumulative effect of accounting change (1.32)
---------- ---------- ---------- ----------
Net loss $ (.47) $ (9.18) $ (2.33) $ (11.61)
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
Basic 10.2 10.1 10.2 10.1
Diluted 10.2 10.1 10.2 10.1
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
(In Millions, Brackets Indicate Decrease in Cash) 2003 2002 2003 2002
- ------------------------------------------------- -------- -------- -------- --------
CASH FLOW FROM CONTINUING OPERATIONS
OPERATING ACTIVITIES
Income (loss) from continuing operations $ (4.8) $ 6.1 $ (23.8) $ (.8)
Depreciation and amortization:
Consolidated 7.0 6.2 21.2 17.5
Share of associated companies 1.0 2.2 2.8 6.2
Pensions and other post-retirement benefits 9.3 .4 27.2 3.8
Deferred income taxes 1.7 (1.7)
Gain on sale of assets (1.2) (1.3) (6.7) (5.1)
Other (3.5) (1.3) (7.5) (3.7)
-------- -------- -------- --------
Total before changes in operating
assets and liabilities 7.8 14.0 13.2 16.2
Changes in operating assets and liabilities 21.6 45.0 4.4 30.1
-------- -------- -------- --------
Net cash from operating activities 29.4 59.0 17.6 46.3
INVESTING ACTIVITIES
Purchase of property, plant and equipment:
Consolidated (4.2) (1.8) (15.3) (7.1)
Share of associated companies (.9) .6 (1.0) (1.7)
Investment in steel companies' equity and debt (14.4) (27.4)
Investment in power-related joint venture (6.0)
Proceeds from sale of assets 1.5 1.4 8.4 6.7
-------- -------- -------- --------
Net cash used by investing activities (3.6) (14.2) (7.9) (35.5)
FINANCING ACTIVITIES
Repayment of long-term debt (5.0)
Contributions by minority interests .2 .1 1.1 .8
-------- -------- -------- --------
Net cash from (used by) financing activities .2 .1 (3.9) .8
-------- -------- -------- --------
CASH FROM CONTINUING OPERATIONS 26.0 44.9 5.8 11.6
CASH USED BY DISCONTINUED OPERATION (2.6) (9.9)
-------- -------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS $ 26.0 $ 42.3 $ 5.8 $ 1.7
======== ======== ======== ========
CLEVELAND-CLIFFS INC
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(In Millions)
---------------------------------------------
September 30 December 31 September 30
2003 2002 2002
--------- --------- ---------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 67.6 $ 61.8 $ 185.5
Trade accounts receivable - net 8.8 14.1 22.0
Receivables from associated companies 9.0 9.0 9.4
Product Inventories 126.0 111.2 99.1
Supplies and other inventories 66.9 73.2 55.8
Other 26.1 31.2 17.2
--------- --------- ---------
TOTAL CURRENT ASSETS 304.4 300.5 389.0
PROPERTIES - NET 271.4 278.9 278.0
LONG-TERM RECEIVABLES 63.1 63.9 10.0
OTHER ASSETS 84.2 86.8 115.7
--------- --------- ---------
TOTAL ASSETS $ 723.1 $ 730.1 $ 792.7
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Borrowings under revolving credit facility $ $ $ 100.0
Current portion of long-term debt 15.0 20.0
Accounts payable and accrued expenses 186.6 170.7 135.2
Payables to associated companies 12.9 14.1 10.8
--------- --------- ---------
TOTAL CURRENT LIABILITIES 214.5 204.8 246.0
LONG-TERM DEBT 35.0 35.0 70.0
PENSIONS, INCLUDING MINIMUM PENSION LIABILITY 163.7 151.3 10.0
OTHER POST-RETIREMENT BENEFITS 114.9 109.1 89.0
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS 81.4 84.7 70.4
OTHER LIABILITIES 37.5 46.0 22.5
--------- --------- ---------
TOTAL LIABILITIES 647.0 630.9 507.9
MINORITY INTEREST 17.7 19.9 25.7
SHAREHOLDERS' EQUITY 58.4 79.3 259.1
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 723.1 $ 730.1 $ 792.7
========= ========= =========
CLEVELAND-CLIFFS INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. On December 31, 2002, Cliffs increased its ownership in the Empire Mine
to 79 percent. As a result, Empire became a consolidated subsidiary. In
comparing the statement of consolidated financial position at September
30, 2002, with the statements at December 31, 2002 and September 30,
2003, there are changes due to the consolidation of Empire versus
accounting for Empire by the equity method. Increases to sales revenue
and cost of goods sold include Empire cost reimbursement from minority
interest in 2003.
2. In the fourth quarter of 2002, Cliffs exited the ferrous metallics
business. The business is accounted for as a discontinued operation in
2002. No further costs are anticipated in 2003 or future periods.
3. In 2002, Cliffs implemented the Financial Accounting Standard Board's
SFAS No. 143, "Accounting for Asset Retirement Obligations" which
addresses financial accounting and reporting obligations associated with
the eventual closure of mining operations. The cumulative effect of the
accounting change on prior years results was recognized by a $13.4
million non-cash charge as of January 1, 2002.
4. In management's opinion, the unaudited financial statements present
fairly the Company's financial position and results. All financial
information and footnote disclosures required by generally accepted
accounting principles for complete financial statements have not been
included. For further information, please refer to the Company's latest
Annual Report.
CLEVELAND-CLIFFS INC
SUPPLEMENTAL FINANCIAL INFORMATION
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------ ------------------------------------
2003 2002 2003 2002
----------------- ----------------- ----------------- -----------------
IRON ORE SALES (TONS) - IN THOUSANDS 5,217 4,998 13,608 10,209
================= ================= ================= =================
SALES MARGIN (LOSS) - IN MILLIONS
Revenues from iron ore sales and services* $ 189.9 $ 170.8 $ 484.8 $ 354.6
Cost of goods sold and operating expenses*:
Total 182.6 165.3 495.3 363.6
Costs of production curtailments 3.4 11.1 20.6
----------------- ----------------- ----------------- -----------------
Excluding costs of production curtailments 182.6 161.9 484.2 343.0
----------------- ----------------- ----------------- -----------------
Sales margin (loss):
Total 7.3 5.5 (10.5) (9.0)
Excluding costs of production curtailments 7.3 8.9 .6 11.6
================= ================= ================= =================
SALES MARGIN (LOSS) - PER TON
Revenues from iron ore sales and services* $ 36.40 $ 34.17 $ 35.63 $ 34.73
Cost of goods sold and operating expenses*:
Total 35.00 33.07 36.40 35.62
Costs of production curtailments .68 .82 2.02
----------------- ----------------- ----------------- -----------------
Excluding costs of production curtailments 35.00 32.39 35.58 33.60
----------------- ----------------- ----------------- -----------------
Sales margin (loss):
Total 1.40 1.10 (.77) (.89)
Excluding costs of production curtailments 1.40 1.78 .05 1.13
================= ================= ================= =================
EBIT AND EBITDA - IN MILLIONS
Income (loss) from continuing operations $ (4.8) $ 6.1 $ (23.8) $ (.8)
Interest income (2.7) (1.4) (7.9) (3.4)
Interest expense 1.2 1.5 3.7 5.4
Income taxes (credit) .3 1.9 .5 (11.0)
----------------- ----------------- ----------------- -----------------
EBIT ** (6.0) 8.1 (27.5) (9.8)
Depreciation and amortization 8.0 8.4 24.0 23.7
----------------- ----------------- ----------------- -----------------
EBITDA ** 2.0 16.5 (3.5) 13.9
================= ================= ================= =================
* Excludes revenues and expenses related to freight and minority interest
which are offsetting and have no impact on operating results.
** EBIT and EBITDA are non-GAAP financial measures used by investors to
analyze and compare companies on the basis of operations performance.